Another Overbroad Termination Provision: What it means for Employees

By Stephen Dugandzic 

In De Castro v Arista Homes Limited, 2024 ONSC 1035, the Ontario Superior Court of Justice addressed critical issues concerning the enforceability of termination clauses in employment contracts and the employer’s burden in proving an employee’s failure to mitigate damages. 

The case was recently upheld by the Ontario Court of Appeal in De Castro v Arista Homes Limited, 2025 ONCA 260

Key Legal Principles:

1. Enforceability of Termination Clauses:

The Court found that the termination clause in Ms. De Castro’s employment contract was unenforceable because it defined “cause” more broadly than permitted under the Ontario Employment Standards Act, 2000 (ESA). Specifically, the clause allowed termination for any breach of the employment agreement or for “cause,” including acts or omissions that would permit termination without notice under common law. This broader definition contravened the ESA, which restricts termination without notice to instances of “wilful misconduct, disobedience, or wilful neglect of duty that is not trivial and has not been condoned by the employer”. As a result, the entire termination provision was deemed void, entitling Ms. De Castro to common law reasonable notice.

2. Employer’s Burden in Proving Failure to Mitigate:

Arista Homes argued that Ms. De Castro failed to mitigate her damages by not making reasonable efforts to find new employment. However, the Court held that the employer bears the burden of proving such a failure. In this case, Arista Homes did not provide any evidence of comparable job opportunities or assist Ms. De Castro in her job search, such as offering reference letters or job leads. Therefore, the Court concluded that the employer failed to meet its evidentiary burden.

3. Application of Summary Judgment under Simplified Procedure:

The case also clarified the use of summary judgment motions within Ontario’s Simplified Procedure. While cross-examinations on affidavits are generally not permitted under the Simplified Procedure, the Court noted that it had ordered a timetable allowing both parties the opportunity to cross-examine. Arista Homes chose not to cross-examine Ms. De Castro, and the Court determined that proceeding with summary judgment was appropriate in this context .

Outcome:

Considering Ms. De Castro’s age (49), length of service (approximately five years), managerial role, and the economic impact of the COVID-19 pandemic, the Court awarded her eight months’ notice, including compensation for lost benefits and a prorated annual bonus, totaling $57,620.85 .

Practical Implications:

• For Employers: This decision underscores the importance of drafting termination clauses that strictly comply with legislation. Employers should avoid broad definitions of “cause” that exceed statutory provisions and ensure that all termination clauses are consistent with statutory minimum requirements.

• For Employees: Employees should be aware that overly broad termination clauses in their contracts may be unenforceable, potentially entitling them to common law reasonable notice upon termination.

This case reinforces the precedent set in Waksdale v. Swegon North America Inc., emphasizing that any part of a termination clause that contravenes the legislation can render the entire clause unenforceable.